Nato's bombing campaign against the Libyan regime is relying strongly on information supplied by rebel leaders in Benghazi with advice from a growing numbers of British officers, according to a senior European diplomat.

Nato denies the rebel military has any target-spotters on the ground to direct the air strikes against Gaddafi. But the diplomat, familiar with the situation in Benghazi, said the main function of the rebels' military leadership committee, the joint operations centre (JOC), was to help the Nato campaign.

"The JOC is just below the [supreme] military council," said the diplomat. "Its main job is to co-ordinate and make more effective the processing of military and tactical information back into Nato so air operations are based on the best information available."

The UK mission in Benghazi, inaugurated last month by Christopher Prentice, a former ambassador to Iraq and Jordan and currently the British envoy in Rome, started with a staff of six. This has expanded to around 40, most of them military officers advising the rebel leadership.

In a sign of the struggle which still lies ahead for the rebels and the Nato mission, Gaddafi's forces have intensified their campaign to take strategic ground in the western mountains. A road used by many of those fleeing the fighting was targeted, forcing the temporary closure of the border crossing into Tunisia.

Jaber Naluti, a volunteer who has been trying to assist people in the area, told the Associated Press seven rebels had been killed. Other reports said that some shells fell inside Tunisia.

Much of the fighting centred around the town of Yafrin, where locals said rockets and missiles were fired. In nearby Zintan, rebels repelled an advance by Gaddafi's forces, killing eight and taking one prisoner, a local activist said.

Disclosure of the growing British role in Benghazi is likely to reignite warnings of mission creep from those worried about David Cameron's hawkishness and may fuel suspicions that British officers are acting as Nato target-spotters.

Nato's spokesman, Wing Commander Mike Bracken, said: "We do not have boots on the ground in Libya."

France, Italy and Turkey are also active in advising Benghazi's government-in-waiting. Despite its deep reluctance to get involved in Libya, the German government said this week it was also sending a "liaison team" to Benghazi.

Amid mounting exasperation among the UK's military top brass that the bombing campaign has proved ineffective and may be helping to entrench a stalemate, Nato officials and European diplomats familiar with Libya are cautiously optimistic.

Three months after the first student protests in Benghazi were bloodily suppressed, triggering a mass revolt against Gaddafi, the western sources spoke of increasing "disarray and dissent" in the capital, Tripoli, and said the balance of morale had tipped strongly in favour of the revolutionaries.

The rebels had "more people wanting to fight than they had weapons", said the diplomat, while "Gaddafi increasingly has to resort to mercenaries and possibly conscripted schoolboys".

A Nato official said the Libyan leader was utterly dependent on a shrinking military and security apparatus whose days were numbered. "The sense of strangulation of the regime is there," said the diplomat, although he conceded that Gaddafi loyalists were showing "remarkable resilience".

Arming the rebels was not a central factor in turning the tide, the source said. "Military supplies won't be the key. More important will be a comprehensive push on strangulation of the regime politically and economically."

Despite the perception that the US was taking a back seat and leaving the anti-Gaddafi campaign to the Europeans, Nato officials said this was for public consumption and that the US remained the sole indispensable force in the operations.

About half of the 7,000 Nato sorties flown since the end of March were said to be by US forces, including attacks on ground targets, especially air defence sites and surface-to-air missile batteries. "The Americans are the rear end of the cow and we are the front end," said a European Nato officer.